Resolution Insurance is folded with approximately Sh6.5 billion in client cash, insurance claims, and creditor monies after its shareholders failed to recapitalise the business.
The Insurance Regulatory Authority (IRA) said that the insurer had collected Sh4.1 billion in premiums from policyholders, with medical clients accounting for 90 percent of the total.
The firm also owed creditors and had Sh2.5 billion in insurance claims, indicating the extensive list of clients and suppliers eager to get their money back from the failing insurer.
The Policyholders Compensation Fund (PCF), which has taken over the firm as the statutory manager, said the firm reported the liabilities to the regulator, but that it will perform an independent audit to verify the claims’ actual extent.
The entire value of compensation to policyholders – which will be restricted at Sh250,000 per client – is expected to be announced next week by PCF.
Creditors and policyholders with higher-value claims will wait until the company is liquidated to see how much extra they can get.
“Resolution Insurance owed creditors, had incurred claims worth Sh2.5 billion, and had collected premiums worth Sh4.1 billion as of December 31, 2020.
The majority around Sh3.5 billion comes from medical business,” the IRA said.
Customers who have medical bills will be affected as well, as they will be required to pay them out of pocket.
Resolution is the first underwriter to go out of business following a period of relative stability in the industry following the bankruptcy of Concord Insurance in 2013.
Following a string of failures, notably United Insurance in 2005, Standard Assurance in 2009, and BlueShield in 2011, the PCF was established 17 years ago to protect insurance policyholders when companies fail to satisfy their responsibilities.
Peter Nduati launched Resolution, which went bankrupt after raising money from many investors and expanding into the medical and general insurance market.
Nduati said he had sold the majority of his stock, leaving him with only a 20-percent ownership, and had relinquished the job of primary officer at the time of the company’s demise. The acting managing director and principal officer is Bernard Githinji.
After acquiring the original owners’ shares in 2014, Nduati possessed 80 percent of the company, which he co-owned with former Equity Bank CEO John Mwangi.
He sold a majority share to Leapfrog Investments later that year.
The problems began in 2017, when the insurance regulator made revisions to the law that required more capital to meet the business’s risk.
Nduati stated that he approached Linkham Services Limited to invest in the company and that the transaction was struck after the UK Group provided proof of funds to be infused.
New Point Capital Limited was revealed as the source of the funds.
After buying out LeapFrog Investments, the UK-based Linkham Group acquired a 55-percent share in Resolution, which was expected to be completed last year.
Nduati’s total share increased from 15 percentage to 20 percent as a result of the purchase.
Due to New Point Capital’s serious non-compliance with the Insurance Act, the regulator accepted the purchase on the condition that the funds could not be drawn from it.
Nduati accuses his business partners, Linkham Services, Dominic Persad, and Michael Cranfield, of failing to inject the remaining Sh346 million after acquiring the company’s majority ownership.
He stated that the company intended to infuse $6 million (Sh692.8 million) into the business to complete the LeapFrog contract, but that only half of that amount was paid.
The money was supposed to be held at the IRA until the deal was completed, but Linkham Services, Dominic Persad, and Michael Cranfield didn’t pay the difference, causing cash flow problems, regulatory violations, and eventual bankruptcy.
Due to New Point Capital’s serious non-compliance with the Insurance Act, the regulator accepted the purchase on the condition that the funds could not be drawn from it.
Nduati accuses his business partners, Linkham Services, Dominic Persad, and Michael Cranfield, of failing to inject the remaining Sh346 million after acquiring the company’s majority ownership.
He stated that the company was intended to infuse $6 million (Sh692.8 million) into the business to complete the LeapFrog contract, but that only half of that amount was paid.
The money was supposed to be held at the IRA until the deal was completed, but Linkham Services, Dominic Persad, and Michael Cranfield didn’t pay the difference, causing cash flow problems, regulatory violations, and eventual bankruptcy.